California One of 2 States to Force Health Insurer Bids

By Alex Wayne -
Mar 13, 2013

California and Vermont are the only
states set to require medical insurers to bid for the chance to
sell coverage through new exchanges being set up this year under
the Obama administration’s health-care overhaul.

The 2010 Affordable Care Act gives states the power to
impose a bidding system for insurers to join the exchanges as an
option to help drive down costs. A survey of the 16 states that
will run their own systems starting in October found that 12
won’t require such a system and at least one other is undecided.

“It’s a missed opportunity if the exchanges don’t use
their bargaining power to force insurance companies to compete
on price,” said Jay Angoff, a partner at Mehri & Skalet in
Washington who once served as Missouri’s insurance commissioner
and later worked for President Barack Obama’s administration.

With about 7 million people projected to seek insurance
through exchanges next year, and 27 million by 2018, states
could have leveraged that customer base to ensure lower prices.
Market competition will hold down premiums, said America’s
Health Insurance Plans, the lobbying group for insurers.

“We’ve always believed that exchanges need to maximize
choice and competition,” Robert Zirkelbach, a spokesman for the
Washington-based organization, said in a telephone interview.
“Efforts to exclude plans from participating in exchanges would
have the opposite effect.”

Undecided States

Two of the 16 states -- Minnesota and Massachusetts -- are
at least considering attaching some strings.

Massachusetts is holding a limited auction, restricted to
insurers that want to sell to low-income people who will receive
extra subsidies from the state. Five plans will win the right to
sell to those customers, said Jean Yang, the executive director
of the Massachusetts Health Connector. People who earn too much
for state subsidies will have a wider choice of plans, she said.

“Competitive bidding obviously is an attractive concept
because it pushes price points down and everyone benefits,” she
said in a phone interview.

Minnesota’s legislature is now debating whether to
authorize an exchange and hasn’t decided to require bids, said
John Pollard, a spokesman for the state budget office.

“We’re exactly smack dab in the middle of that debate,”
he said.

Vermont’s Options

Vermont is making insurers bid, yet with only two carriers
in the state, the government is unlikely to exclude either of
them, said Lindsey Tucker, the exchange’s deputy commissioner.

That’s driven decisions in many states, where officials say
that without knowing how many people will enroll in the
exchanges, they hesitate to drive hard bargains with insurers.

“It’s kind of like saying, ’I’m going to negotiate with
the car dealer but I don’t know what model I want, what features
I want, I don’t know if I want automatic or stick shift -- but
I’d like to negotiate price with you,’” said Kevin Counihan,
the executive director of the Connecticut exchange. “It’s hard
to negotiate with no market share.”

In the absence of leverage, broader choice can be
effective, Counihan said in a telephone interview.

“This is music to the ears of the insurers,” said Joel Ario, a former Obama administration health official who is now
managing director at Manatt Health Solutions, a consulting firm
in Washington that is advising insurers on exchange rules.

Broad Choice

Insurers say the best way for states to secure affordable
premiums as well as a wide choice of plans is to allow any
carrier into the exchange that qualifies under federal rules.

“Our position has been: let everyone who’s qualified
play,” said Kim Holland, a former Oklahoma insurance
commissioner who manages state affairs for the Blue Cross Blue
Shield Association, a federation of 38 local plans, including
some owned by WellPoint Inc. (WLP)

“Already, there are carriers saying we’re going to limit
the number of exchanges we participate in,” Holland said in a
phone interview. “To further limit that doesn’t make a lot of
sense.”

In California, which expects as many as 2.4 million people
to be shopping in its exchange by the end of January, 33
insurers have said they will bid to sell plans, said Dana
Howard, a spokesman for the exchange, called Covered California.

“They will not all be in,” said Peter Lee, the executive
director of Covered California, in a Feb. 13 conference call
with reporters. “We will select the plans that will be best for
California’s consumers.”

Rate Shock

The federal government is building and running exchanges in
26 states and doing most of the work in seven others. The Obama
administration has told insurers they won’t have to bid to get
into the federal exchanges for at least three years.

“If the rates for a proposed plan are determined to be
unreasonable or inappropriate,” the marketplaces may exclude
the plan, Alicia Hartinger, a spokeswoman for the U.S. health
agency’s Center for Consumer Information and Insurance
Oversight, which is building the federal exchanges, said in an
e-mail.

It’s not yet known what exchange plans will cost. Insurers
will begin filing plan designs and their rates for 2014 to
states in the spring. The industry has warned of “rate shock”
as people shop in the exchanges for plans that must pay new fees
and taxes; are limited in how much they can charge older people
compared with younger ones; and must offer generous benefits.

Kevin Galvin, who owns a maintenance company in
Connecticut, said he worries that the decision to let all
insurers into his state’s exchange will mean prohibitively high
premiums for him and his four employees. Galvin and other
consumer advocates in the state had lobbied to hold a bid. The
board supervising the exchange, which has members who used to
work for insurers, rejected the idea at a meeting in November.

Gavin said he’s never before been able to afford coverage
for his workers.

“I don’t know a small-business man or woman who does not
want their people to be insured and healthy,” Galvin said in a
telephone interview. “The concern around the exchange, or
around what is going to be in the exchange, is affordability.”